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3 Considerations for First-Time Home Buyers

For first-time home buyers, the prospect of owning their first home is incredibly exciting, yet nerve-wracking. Many choose to buy a home after years of renting in order to officially establish roots in a place of their own. Owning your home carries many perks, including being able to paint your own walls, change anything you’d like, and relax in your own space. It also creates a sense of stability, as buying a home usually indicates that the homeowners are planning on staying in the same space for a while. Furthermore, many view their own home as an investment. Instead of paying rent each month, each mortgage payment made will make a dent in the overall balance of your loan.

Who is buying a home today? The “2017 Home Buyer and Seller Generational Trends Report” once again reported that buyers 36 years and younger, or Millennials, make up the largest share of home buyers for the 4th year in a row at 34%.1 First-time home buyers represented 35% of all home buyers, with the Millennial generation also accounting for the largest share of first-time home buyers at 66%.1 The second largest group of first-time home buyers were those ages 37 to 51, accounting for 26%. 1

Buying a home is not a decision to make overnight. It requires a detailed process of carefully figuring out a budget, the type of house you’re searching for, a designated location, a realtor, and much more. Financially speaking, there is quite a lot to do, and for first-time home buyers, the process can seem particularly overwhelming.

If you are considering buying your first home, here are three basic considerations to help start the process:

Assess your financial health ahead of time.

Before you make any moves in the home buying process, take a deep dive into your financial situation and assess if buying right now is the best move for you. In 2017, 49% of all buyers who had problems with saving reported that student loan debt contributed to a delay in them buying a home.1 If you have outstanding debt (student loans, credit cards, etc.) or other immediate financial priorities, determine if you should give precedence to these items over saving for a home, at least for the time being. Additionally, review your credit report before you apply for a mortgage. You can view a free copy of your credit report once every 12 months from each of the three major credit bureaus at the government-approved website www.AnnualCreditReport.com. Your credit score is crucial in securing the best mortgage rate possible. To reduce potential barriers in qualifying for a mortgage, comb over your report to spot any errors that may indicate identity theft or to locate any items that could be fixed on your end to improve your score, such as late payments.

Develop a comprehensive budget.

Once you’ve decided that you are ready to buy a home and you’ve scoured over your credit report, the next step is to consider how much you can realistically afford. This can often vary from how much your mortgage lender approves you for. Your financial advisor can help you determine how much you would be comfortable paying for, while also keeping any other financial priorities you may have in mind. While spending all that you were approved for can seem tempting, avoid becoming “house poor,” or spending a large portion of your total income on your home, and stick to what you are comfortable with. Then, work with your realtor to accurately factor in any other costs that you’ll have to account for. Many first-time home buyers can overlook items that typically would be bundled in with a monthly rent payment. Your realtor can help disclose these items to account for, both within the home buying process (a down payment, closing costs, etc.) and monthly costs you’ll assume (maintenance, homeowners’ insurance, property taxes, water, etc.). Lastly, don’t forget to factor in additional items that you know you will be purchasing immediately upon moving into your new home, such as new furniture, blinds, fencing, paint, and so on. While accounting for every little item in your budget may seem tedious, it will immensely help in developing the most accurate budget possible.

Understand the commitment.

After you have arrived at a budget fit for you, consider the commitment that accompanies purchasing a home before making any decisions. Keep in mind that the majority of sellers lived in their homes for 10 years before selling in 2016.2 Buying a home is often a commitment to stay put for a few years. Consider how long you want to stay there and how your life may look several years from now. Will your home be able to accommodate any new changes, such as marriage or children a few years down the road? Another thing to consider is the eventual resale value of the home. One of the biggest factors in this is the location—how is the neighborhood? Are there good schools in the area? While you can change a lot of things about your home, you can’t change the area that it is located in. Work with your realtor to identify an area with options that fit your budget and boast a good location for resale purposes later on.

Buying your first home is an investment in your future. Take the time to navigate the process carefully. For any help throughout the financial side of the process, contact your financial advisor.

1“Home Buyer and Seller Generational Trends Report.” National Association of REALTORS® Research Department. Published March 2017.

2”2016 Profile of Home Buyers and Sellers.” National Association of REALTORS®. Published October 2016.

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